We estimate that we will receive net proceeds of approximately $137.9 million
from the sale of 25,000,000 shares of our common stock in this offering, or
$158.8 million if the underwriters' over-allotment option is exercised in full,
after deducting the underwriting discounts and commissions and the estimated
offering expenses payable by us. The proceeds from our sale of shares to Compaq
upon the completion of this offering will be $5.0 million.
The principal purposes of this offering are to raise funds, create a public
market for our common stock, facilitate our future access to the public capital
markets and increase our visibility. We intend to use the net proceeds of this
offering primarily for general corporate purposes, including working capital
and capital expenditures. The amounts and timing of these expenditures will
vary depending on a number of factors, including the amount of cash generated
or used by our operations, competitive and technological developments and the
rate of growth, if any, of our business. We may also use a portion of the net
proceeds to acquire additional businesses, services, products or technologies
or invest in additional businesses that we believe will complement our current
or future business. However, we have no specific plans, agreements or
commitments to do so and are not currently engaged in any negotiations for any
acquisition or investment. As a result, we will retain broad discretion in the
allocation of the net proceeds of this offering. Pending the uses described
above, we will invest the net proceeds of this offering in cash,
cash-equivalents, money market funds or short-term interest- bearing,
investment-grade securities to the extent consistent with applicable
regulations. We cannot predict whether the proceeds will be invested to yield a
favorable return.

The market for Internet infrastructure services is rapidly evolving and
intensely competitive. We expect competition to persist and intensify in the
future.
In addition to in-house solutions, our primary current and prospective
competitors include:
. providers of co-location or web site hosting and related services;
. technology vendors that have recently announced their intentions to offer
some of the services that we offer currently to a portion of our targeted
customer base; and
. providers of Internet systems integration or professional services.
Many of our competitors have longer operating histories, significantly greater
financial, technical, and other resources, or greater name recognition than we
do. Our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements. Competition could seriously
harm our ability to sell additional services on terms favorable to us.
Competitive pressures could cause us to lose market share or to reduce the
price of our services, either of which could harm our business, financial
condition and operating results.
We believe that the principal competitive factors in our market include:
. quality and reliability of services offered;
. scope of supported applications and technology platforms;
. scalability of the operational environment supported;
. extent to which the services offered provide a complete solution to a
potential customer's operations requirements;
. engineering and technical expertise and development of automation software;
. rapid deployment of services;
. quality of customer service and support; and
. price.
Although we believe our services compete favorably with respect to each of
these factors, the market for our services is new and rapidly evolving. We may
not be able to maintain our competitive position against current and potential
competitors, especially those with greater resources.

Company Description

We offer businesses a new class of Internet infrastructure services using our
Opsware technology, which automates formerly manual tasks, such as configuring
and managing a customer's operations infrastructure, thereby reducing the
amount of manual intervention required. These services, which we

call Smart
Cloud services, include those required to deploy, maintain and grow Internet
operations. This fully outsourced solution enables our customers to increase or
reduce their Internet operations capacity as business needs dictate. Our Smart
Cloud services enable our customers to benefit from reliable, high-quality
Internet operations, which can grow to accommodate increasing business needs,
without undertaking the difficulty and expense associated with building the
required expertise in-house.
We provide our Smart Cloud services through the Loudcloud Infrastructure
Network, which allows us to consistently deploy operations capacity for our
customers across multiple locations and to maintain that infrastructure through
a centralized network operations center. The Loudcloud Infrastructure Network
consists of our technology located in a number of interconnected third-party
data centers and maintained by our Opsware technology. Among other things, the
Loudcloud Infrastructure Network enables our customers to:
. maintain a duplicate operations infrastructure in a separate location to
protect against loss of service in the event of a localized disruption;
. provide geographically dispersed end users with enhanced site performance by
maintaining customers' operations in areas close to their end users;
. quickly expand their Internet presence as business opportunities arise in new
geographies; and
. efficiently incorporate new functionality or technologies into their existing
Internet operations as Internet technologies evolve.
Central to the operation of our Loudcloud Infrastructure Network is our Opsware
technology. We believe that our Opsware technology will enable us to deploy and
service customers more quickly and efficiently and with a higher quality of
service than customers could otherwise do.

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